The Exaggerated Death of Retail

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Amazon is a retail juggernaut.  Last year the company was responsible for 5% of total US retail sales (online and offline).  Their growth and expansion seems unstoppable at the same time that we see other iconic retailers (Sears, JC Penney, Radio Shack, Payless Shoes, etc.) struggling to stay alive.  Given the convenience and potential for cost savings it’s easy to say that the future of retail is online and brick-and-mortar establishments are a thing of the past but this FastCompany article,”The Future Of Retail In The Age Of Amazon“, offers a different perspective.  Fair warning – this is a fairly lengthy article but it provides a number of good discussion topics.

The article starts by discussing the decline in traditional malls but talks about investments being made by the Mall of America to attract younger buyers.  While online shopping has certainly contributed to traditional store closures, the article also claims over-expansion and lack of investment are significant contributors to decline as well.  Even with all of the well publicized store closings there was still a net increase of 4000 stores in 2017 and a higher increase expected this year.  The article spotlights Target and talks about some of the investments they’re making to move back to partnered custom products and emphasize visual merchandising in their store design.  Much of the article alludes to the idea that a focus on the shopping experience can provide a unique value proposition that allows traditional retail to differentiate itself from online retail.

Students do a surprising amount of traditional retail shopping and you can get some good discussions started when asking them to articulate why they choose to buy in-store as opposed to buying online.

Channel Optimization with Big Data

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Continuing the theme of our last post, this article on ZDNet discusses the way UPS uses big data to solve business problems.  In their case, the goal is to optimize various business processes.  For instance, one application uses telematics and proprietary algorithms to create optimized routes for drivers.  Those routes will continue to be dynamically updated and optimized during the day based on outstanding work and other variables.  UPS expects this efficiency gains to result in a reduction of 100 million delivery miles and a reduction of 100,000 metric tons of carbon emissions.

The Collapse of Retail

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Every few months there is an article about the end of the brick-and-mortar retail era.  Chain after chain disappear, often citing Amazon as the primary driver.  This article from the USA Today lists 15 retailers that declared bankruptcy in 2017.  Is brick-and-mortar retail truly doomed?

Ask your students what they would do if they were responsible for marketing for a brick-and-mortar chain.  Can Target, Best Buy, and Wal-Mart survive in the Amazon age?  How?  This can lead to a good discussion on differentiation and competitive advantage.  Capture those ideas on the board and then ask them to design promotions that can effectively communicate those ideas.  What type of promotion?  Where would it be seen?  What is the message?

If you have time, ask them if there’s anyone that could displace Amazon and force them into bankruptcy.  It may sound like an absurd idea but remind them that many strong brands like Blockbuster, Barnes & Noble, Kodak, Macy’s, and Sears were once considered icons that would last forever.  How can you beat Amazon?  Can Amazon undermine their own success and open the door for competitors?

Snap Kitchen’s Healthy and Convenient Meals Gain Foothold

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packagingSnap Kitchen is trying to find that sweet spot many consumers want — tasty, convenient and healthy food at a fair price. There is a good sized target market that wants a healthy grab-and-go meal. And if it’s tasty, they might even pay a premium for it. This is the target market that Snap Kitchen is finding. The fast-growing chain now has 44 stores and also sells through 5 Whole Foods Markets stores. You can read more in this Bloomberg Businessweek article, “Forget the Salad Bar. A $50 Million Startup Best on Healthy Grab-and-Go Meals” (August 25, 2016).

This article might be useful in a number of places in the introductory marketing class. In chapter 3 we cover social cultural trends – and more Americans are seeking healthy food choices. The article sets up a potential discussion of consumer behavior and competition. How can Snap Kitchen keep out the competition? Especially from grocery stores that seem to be trying to move into that same upscale grab-and-go food market with fresh in-store sushi and deli counters. There are also distribution questions (consider Place chapters 10 — introduction and 12 — retailing).

EpiPen Pricing Offers Opportunity to Explore Strategy and Ethics

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It was hard to miss the story of Mylan’s pricing of the EpiPen as it played across the business news cycle for a couple of weeks in late August and early September 2016. Now that the dust has settled a bit, we will offer some perspective and  ideas about how this might be used in a principles of marketing class.

The pricing of pharmaceutical drugs has unique challenges including long product development cycles (with most ending in failure), patent protection, sometimes life-saving qualities, and frequently paid for by insurance (for more, see the What’s New? box in Essentials of Marketing 15th edition, chapter 17).

Focusing on maximizing profits, companies can make a lot of money charging a high price for a drug that is on patent (or in this case has no adequate substitutes) and saves lives (that tends to reduce price sensitivity). On the other hand, high prices can bring in new competitors, or in this case attracts negative publicity and possibly increased regulation.

We have pulled together a few articles that you might read to understand this topic better. A Bloomberg Businessweek article, “The EpiPen Drama Shows What’s Wrong With How Drugs Are Priced” (September 1, 2016) provides a good overview of the issues and history. Among other things, it notes that when Mylan acquired marketing rights for EpiPen in 2007, a pair of the auto-injectors cost around $100. They now cost over $600. That is a big margin on a product estimated to cost about $20-30 each to produce.  Most of the cost is for the auto-injection system as epinephrine “drug” that is delivered costs less than a dollar.

Another interesting teaching element of this case is how the profits are distributed along the long channel of distribution for the drug:  Mylan gets $274, while “…your insurer keeps $249. The pharmacy benefits manager that negotiates between Mylan and your insurer gets $40. Your local pharmacist keeps $27. The wholesaler gets $10.” (NBC News, September 6, 2016). This raises questions about the efficiency and value provided by this channel of distribution. This suggests an opportunity to discuss EpiPen when you cover Place.

There is also an opportunity to explore some of Mylan’s promotion and targeting practices for EpiPen (see Bloomberg Businessweek, “How Marketing Turned the EpiPen Into a Billion-Dollar Business,” September 23, 2015). The company aggressively built the EpiPen brand name, started selling the delivery devices only in two-packs, and sought to have them stocked in schools and public places (including every room in Disney World hotels). With expiration dates, most of those EpiPens will go unused — and have to be replaced. What are the ethics here? And why do they cost less than $100 in Canada? The certainly raise issues that could be used when discussing Product as well as segmentation and targeting.

This case primarily deals with ethics and marketing strategy. It covers more than pricing — as profits from successful drugs are used to fund R&D for new drugs. Yet when some families have to decide between buying EpiPens and a month’s worth of groceries, important questions are raised. These are questions our students should wrestle with. We think that the case provides an opportunity to discuss a range of marketing issues in your class.